Spillover effects between energy uncertainty and financial risk in the Eurozone banking sector

Vincenzo Pacelli, Caterina Di Tommaso, Matteo Foglia and Maria Melania Povia

Energy Economics, 2025, vol. 141, issue C

Abstract: This paper investigates the connection between energy uncertainty and banking credit risk within the Eurozone. To analyze this relationship, we first apply a Bayesian time-varying VAR model to examine how shocks in energy uncertainty influence financial risk. Next, we use the impulse response function to assess how these shocks propagate through the banking sector. Further, long-run Granger causality is employed to investigate the causal pathways of shock transmission. Our empirical findings show clear patterns: banking credit risk increases in response to energy uncertainty shocks. Over time, these shocks show a progressively rising impact on credit risk, highlighting the growing influence of energy uncertainty on the spread of financial risk.

Keywords: Energy uncertainty; Credit risk; Banking system; Spillover effect (search for similar items in EconPapers)
JEL-codes: G10 G32 G41 Q50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007916

DOI: 10.1016/j.eneco.2024.108082

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